Question 1) What is comercial purchasing Question 2) Give examples of which areas commercial purchasing is used in

Essay by HygenusUniversity, Bachelor'sD+, March 2004

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Asssignment 1 - Purchasing

Part 1

Commercial purchasing is " ..... that function responsible for obtaining by purchase, lease or other legal means, equipment, materials, supplies and services required by an undertaking for use in production" (Lysons). Also through the effective use of purchasing one would hope to add value to an organisation.

The strategic importance of purchasing in a modern organisation cannot be underestimated. Whether an organisation realises it or not purchasing can have a very significant impact. To put this simply every pound saved through more effective purchasing strategies is a pound more profit for the company. No other activity in an organisation has the potential to save/increase a companies revenues by as much. In order to illustrate this I have provided the following example.

Total SalesTotal PurchasesProfit

�0m �0m �m

If puchasing costs are reduced by a mere 5% (�00,000) these figures become;

Total SalesTotal PurchasesProfit

�0m �4m �m

A 5% reduction in purchasing costs can be equated to a 30% increase in turnover.

That is not to say that turnover is not important, mearly that effective purchasing can reap large rewards.

Purchasing should not be seen purely in terms of price alone, what it really needs to do is add value to the company through effective management of the supplier base, and careful consideration of what the consumer, the end user of the companies product, percieves as value for money. What this means is that while the the purchasing department may be able to obtain a good or service at the best possible market price, it may not be view by the customer as value for money. e.g. A car company developes a system for washig the side windows of cars, purchasing says that they can obtain the parts for �0. Customers don't want the...